I’ve seen this done before, but this is currently the only guide I can find to Installing Windows XP from a USB drive.
If your computer has USB 2.0 ports and can boot off USB (true of most recent PCs), this is not only convenient–it should also be very fast.The computer may or may not boot quickly, but once it’s up and running, Windows should theoretically install in a few minutes. And if you slipstream your service packs, you can save that installation time too.
If you have the 32-bit version of Ghost, you can deploy images with this method too.
I installed MS Office off a USB stick last week, and it installed in about five minutes.
While your CD-ROM drive is connected to a faster bus, the USB stick has much lower seek times, and when you’re transferring large numbers of small files, such as during an installation, seek time matters more.
If you build a lot of systems, you need this guide. About a 2-gig USB flash drive ought to hold everything you need.